SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


         __X__   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                 THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended September 30, 1998 

         _____   TRANSITION REPORT PURSUANT TO SECTION 13 OR
                 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the transition period from ____ to ____ 

                        Commission file number 1-14762

                            THE SERVICEMASTER COMPANY
             (Exact name of registrant as specified in its charter)

              Delaware                                 36-3858106
 (State or other jurisdiction of            (IRS Employer Identification No.)
  incorporation or organization)

One ServiceMaster Way, Downers Grove, Illinois         60515-1700
(Address of principal executive offices)               (Zip Code)

                                   630-271-1300
               (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes __X__ No_____.

Indicate the number of shares outstanding of each of the issuer's classes of 
shares:  297,306,636 shares on November 6, 1998.

This document consists of 18 pages, including the cover page.


<PAGE>
                                                                   
                                  TABLE OF CONTENTS


THE SERVICEMASTER COMPANY (Registrant) -



                                                                            Page
                                                                             No.
                                                                            ----
Part I.  Financial Information
-------  ---------------------

Consolidated Statements of Income for the three and
   nine months ended September 30, 1998 and September 30, 1997                 2

Consolidated Statements of Financial Position
   as of September 30, 1998 and December 31, 1997                              3

Consolidated Statements of Cash Flows for the nine months
   ended September 30, 1998 and September 30, 1997                             4

Notes to Consolidated Financial Statements                                     5

Management Discussion and Analysis of Financial Position
   and Results of Operations                                                   7



Part II.  Other Information
--------  -----------------

Item 1:  Legal Proceedings                                                    15

Item 5:  Other Information
         Acquisition of LandCare USA                                          15


Signature                                                                     17


                                       1
<PAGE>

<TABLE>
<CAPTION>
                                                        
                                            PART I. FINANCIAL INFORMATION

                                              THE SERVICEMASTER COMPANY
                                          Consolidated Statements of Income
                                        (In thousands, except per share data)


                                                     Three Months Ended                    Nine Months Ended
                                                        September 30,                        September 30,

                                                    1998             1997                1998             1997
                                                    ----             ----                ----             ----
<S>                                              <C>              <C>                 <C>              <C>        
Operating Revenue...........................     $ 1,273,093      $ 1,090,114         $ 3,499,508      $ 2,918,044

Operating Costs and Expenses:
Cost of services rendered
 and products sold..........................         956,375          832,665           2,702,538        2,243,344
Selling and administrative expenses.........         202,870          159,434             499,554          419,648
                                                 -----------      -----------         -----------      -----------
Total operating costs and expenses..........       1,159,245          992,099           3,202,092        2,662,992
                                                 -----------      -----------         -----------      -----------


Operating Income............................         113,848           98,015             297,416          255,052

Non-operating Expense (Income):
Interest expense............................          22,404           22,566              71,044           53,758
Interest and investment income..............          (3,092)          (5,096)            (11,916)         (10,409)
Minority interest...........................               -            2,033                   -            6,196                 
                                                 -----------      -----------         -----------      -----------
                                                 

Income before Income Taxes..................          94,536           78,512             238,288          205,507
Provision for income taxes
 (pro forma in 1997) (1)....................          38,184           31,719              96,262           83,025
                                                 -----------      -----------         -----------      -----------

Net Income (pro forma in 1997) (1)..........     $    56,352      $    46,793         $   142,026      $   122,482
                                                 ===========      ===========         ===========      ===========

Per Share (1) (2) (3)
 Basic (pro forma in 1997)..................            $.19             $.17                $.49             $.42
                                                        ====             ====                ====             ====
 Diluted (pro forma in 1997)................            $.19             $.16                $.48             $.41
                                                        ====             ====                ====             ====

Cash Distributions (3)......................            $.08             $.08                $.24        $ .23 1/8
                                                        ====             ====                ====        =========



(1) The Company  converted  from  partnership  to corporate form on December 26,
1997. The results shown above for the periods ended September 30, 1997 have been
restated to adjust the actual  historical  information  to a basis that  assumes
that  reincorporation  had occurred as of the beginning of that year. Actual net
income, as previously reported (i.e., excluding the effects of pro forma federal
and state income taxes),  was $75,759 and $198,326 for the three months and nine
months ended September 30, 1997,  respectively (basic and diluted net income per
share were $.28 and $.26 for the three months  ended,  and $.68 and $.66 for the
nine months ended September 30, 1997, respectively).

(2) Basic earnings per share are calculated  based on 294,686 shares and 273,061
shares for the three months ended September 30, 1998 and 1997,  respectively and
286,938 shares and 289,855  shares for the nine months ended  September 30, 1998
and 1997,  respectively.  Diluted  earnings  per share are  calculated  based on
304,464 shares and 287,876 shares for the three months ended  September 30, 1998
and 1997, respectively and 296,603 shares and 303,366 shares for the nine months
ended September 30, 1998 and 1997, respectively.

(3) On July  24,  1998,  the  Board  of  Directors  of the  Company  declared  a
three-for-two  share split effective August 26, 1998, for shareholders of record
on August 12,  1998.  All shares and per share data have been  restated  for all
periods presented to reflect the three-for-two share split.


                 See Notes to Consolidated Financial Statements
</TABLE>


                                        2
<PAGE>
<TABLE>
<CAPTION>


                                       THE SERVICEMASTER COMPANY
                             Consolidated Statements of Financial Position
                                            (In thousands)

                                                                                   As of
                                                                      September 30,      December 31,
                                                                            1998             1997    
                                                                      --------------    -------------
Assets

Current Assets:
<S>                                                                   <C>             <C>           
Cash and cash equivalents............................................ $      56,708   $       64,876
Marketable securities................................................        58,808           59,248
Receivables, less allowances of $33,377
 and $32,221, respectively...........................................       399,540          299,138
Inventories..........................................................        49,950           48,157
Prepaid expenses and other assets....................................       137,194          122,665
                                                                       ------------    -------------
    Total current assets.............................................       702,200          594,084
                                                                       ------------    -------------

Property and Equipment:
 At cost.............................................................       427,994          362,653
 Less:  accumulated depreciation.....................................       226,048          204,383
                                                                       ------------    -------------
    Net property and equipment.......................................       201,946          158,270
                                                                       ------------    -------------

Intangible assets, primarily trade names and goodwill,
 net of accumulated amortization of $258,658
 and $218,293, respectively..........................................     1,822,088        1,563,309
Notes receivable, long-term securities, and other assets.............       157,230          159,561
                                                                       ------------    -------------

    Total assets..................................................... $   2,883,464   $    2,475,224
                                                                       ============    =============


Liabilities and Shareholders' Equity

Current Liabilities:
Accounts payable..................................................... $      98,662   $       84,673
Accrued liabilities..................................................       342,781          270,667
Deferred revenues....................................................       186,898          181,298
Current portion of long-term obligations.............................        46,213           21,539
                                                                       ------------    -------------
    Total current liabilities........................................       674,554          558,177
                                                                       ------------    -------------

Long-Term Debt.......................................................     1,177,334        1,247,845
Other Long-Term Obligations..........................................       129,589          144,764
Commitments and Contingencies .......................................

Shareholders' Equity:
Common stock $0.01 par value, authorized 1 billion shares; issued
 and outstanding 296,902 and 279,944 shares, respectively............         2,969            2,799
Additional paid-in capital...........................................       784,124          518,491
Retained earnings....................................................       148,710           65,000
Restricted stock.....................................................        (3,604)          (4,270)
Treasury stock.......................................................       (30,212)         (57,582)
                                                                       ------------    -------------
    Total shareholders' equity.......................................       901,987          524,438 
                                                                       ------------    -------------

    Total liabilities and shareholders' equity....................... $   2,883,464   $    2,475,224 
                                                                       ============    =============


                           See Notes to Consolidated Financial Statements                                                    
</TABLE>

  
                                     3
<PAGE>
<TABLE>
<CAPTION>

                                       THE SERVICEMASTER COMPANY
                                 Consolidated Statements of Cash Flows
                                             (In thousands)

                                                                                 Nine Months Ended
                                                                                   September 30,
                                                                              1998              1997    
                                                                          ------------      ------------

<S>                                                                     <C>                <C>          
Cash and Cash Equivalents at January 1................................  $       64,876     $      72,009

Cash Flows from Operations:
Net Income............................................................         142,026           198,326
    Adjustments to reconcile net income
    to net cash provided from operations:
       Depreciation...................................................          38,772            33,899
       Amortization...................................................          40,365            35,939
       Change in working capital, net of acquisitions:
         Receivables..................................................         (84,901)          (44,306)
         Inventories and other current assets.........................          (8,011)          (18,332)
         Accounts payable.............................................           9,527            (1,595)
         Deferred revenues............................................           3,380            10,983
         Accrued liabilities and taxes................................          67,586            18,901
       Other, net.....................................................          (3,127)             (652)
                                                                         -------------      ------------
Net Cash Provided from Operations.....................................         205,617           233,163
                                                                         -------------      ------------

Cash Flows from Investing Activities:
    Business acquisitions, net of cash acquired.......................        (171,640)         (184,608)
    Property additions................................................         (58,921)          (39,480)
    Payments to sellers of acquired businesses........................          (7,830)           (3,306)
    Net purchases of investment securities...........................           (5,802)           (4,088)
    Notes receivable and financial investments........................          (3,920)          (10,855)
    Sale of equipment and other assets................................           3,775             3,197
                                                                         -------------      ------------
Net Cash Used for Investing Activities................................        (244,338)         (239,140)
                                                                         -------------      ------------

Cash Flows from Financing Activities:
    Proceeds from stock offering......................................         208,770                 -
    Payments of borrowings and other obligations......................        (373,727)          (47,876)
    Borrowings, net...................................................         253,567           771,386
    Distributions to shareholders and shareholders' trust.............         (58,316)          (93,520)
    Proceeds from employee share option plans.........................           7,302             6,101
    Purchase of ServiceMaster shares..................................         (12,237)         (646,876)
    Other.............................................................           5,194              (542)
                                                                         -------------      ------------
Net Cash Provided from (Used for) Financing Activities................          30,553           (11,327)
                                                                         -------------      ------------ 

Cash Decrease during the Period.......................................          (8,168)          (17,304)
                                                                         -------------      ------------

Cash and Cash Equivalents at September 30.............................  $       56,708     $      54,705
                                                                         =============      ============


                            See Notes to Consolidated Financial Statements                              
</TABLE>
                           
                                       4
<PAGE>

                              THE SERVICEMASTER COMPANY
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note  1:  The  consolidated   financial   statements  include  the  accounts  of
ServiceMaster and its significant subsidiaries, collectively referred to as "the
Company".  Intercompany  transactions  and  balances  have  been  eliminated  in
consolidation.

Note 2: The consolidated financial statements included herein have been prepared
by the  Company  pursuant to the rules and  regulations  of the  Securities  and
Exchange  Commission.  Certain  information  and footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations.  However, the Company believes that the disclosures are adequate to
make the  information  presented  not  misleading.  It is  suggested  that these
consolidated  financial  statements  be read in  conjunction  with the financial
statements and the notes thereto  included in the Company's latest Annual Report
to shareholders and the Annual Report to the Securities and Exchange  Commission
on Form  10-K for the year  ended  December  31,  1997.  In the  opinion  of the
Company,  all adjustments  necessary to present fairly the financial position of
The  ServiceMaster  Company as of September 30, 1998 and December 31, 1997,  and
the  results of  operations  for the three  month and nine month  periods  ended
September  30,  1998 and  1997,  and the cash  flows for the nine  months  ended
September  30,  1998 and  1997,  have  been  included.  The  preparation  of the
financial   statements   requires  management  to  make  certain  estimates  and
assumptions  required under generally accepted  accounting  principles which may
differ from the actual results. The results of operations for any interim period
are not necessarily indicative of the results which might be obtained for a full
year.

Note 3: For interim accounting purposes,  certain costs directly associated with
the  generation of lawn care revenues are initially  deferred and  recognized as
expense  as the  related  revenues  are  recognized.  All such  costs  are fully
recognized within the fiscal year in which they are incurred.

Note 4: On July 24, 1998, the Company's Board of Directors  declared a three-for
two share split effective  August 26, 1998, for shareholders of record on August
12,  1998.  All share and per share  data  have been  restated  for all  periods
presented to reflect this three-for two split.

Note 5: Basic earnings per share  includes no dilution from options,  debentures
or other financial  instruments and is computed by dividing income  available to
common  stockholders  by the  weighted  average  number of  shares  outstanding.
Diluted  earnings  per share  reflects  the  potential  dilution of  convertible
securities and options to purchase common stock.  The following chart reconciles
both  the  numerator  and  the  denominator  of the  basic  earnings  per  share
computation to the numerator and  denominator of the diluted  earnings per share
computation.

<TABLE>
<CAPTION>


                                                          Three months                        Three months
                                                    ended September 30, 1998            ended September 30, 1997
                                                --------------------------------    --------------------------------
     
                                                                                     Pro forma
(in thousands, except per share data)              Income      Shares     EPS         Income       Shares     EPS
                                                   ------      ------     ---        ---------     ------     ---
<S>                                               <C>          <C>       <C>          <C>          <C>       <C>   
Basic earnings per share                          $ 56,352     294,686   $ 0.19       $ 46,793     273,061   $ 0.17
                                                                         ======                              ======
Effect of dilutive securities, net of tax:
   Options                                                       9,778                               9,374
   Convertible debentures                                                                  277       5,441
                                                ----------   ---------              ----------   ---------
Diluted earnings per share                        $ 56,352     304,464   $ 0.19       $ 47,070     287,876   $ 0.16 
                                                ==========   =========   ======     ==========   =========   ======     
</TABLE>
                                   
                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                             Nine months                             Nine months
                                                      ended September 30, 1998                ended September 30, 1997
                                                 -----------------------------------      --------------------------------

                                                                                           Pro forma
(in thousands, except per share data)                Income        Shares      EPS          Income        Shares     EPS
                                                     ------        ------      ---         ---------      ------     ---
<S>                                                 <C>            <C>        <C>           <C>           <C>       <C>        
Basic earnings per share                            $ 142,026      286,938    $ 0.49        $ 122,482     289,855   $ 0.42       
                                                                              ======                                ======
Effect of dilutive securities, net of tax:
 Options                                                             9,423                                  8,070
 Convertible debentures                                    32          242                        831       5,441
                                                 ------------   ----------                -----------   ---------   
Diluted earnings per share                          $ 142,058      296,603    $ 0.48        $ 123,313     303,366   $ 0.41
                                                 ============   ==========   =======      ===========   =========   ======     
                                   
</TABLE>


Note 6: In the  Consolidated  Statements of Cash Flows and on the Balance Sheet,
the  caption  Cash and Cash  Equivalents  includes  investments  in  short-term,
highly-liquid securities having a maturity of three months or less. Supplemental
information  relating to the Consolidated  Statements of Cash Flows for the nine
months ended  September 30, 1998 and 1997 is presented in the  following  table.
The  increase in  interest  paid in 1998 from 1997 is  primarily  due to overall
higher debt  balances  throughout  the nine month period  (relating to the first
quarter impact of the April 1997 WMX share  repurchase) as well as the timing of
payments on the public debt.  The cash paid increase was greater than the growth
in  interest  expense  recognized  in  the  income  statement.   This  disparity
represented  the change in timing of payments  and is reflected in the change of
working  capital in the cash flow  statement.  Immaterial  amounts of taxes were
paid in the nine months ended  September  30, 1998 and 1997 due to the Company's
partnership status in 1997 and a one year deferral of tax payments in 1998.


<TABLE>
<CAPTION>
                                                                   (In thousands)
                                                                  1998        1997 
                                                               ----------  ----------    
Cash paid or received for:
<S>                                                           <C>         <C>       
Interest expense............................................  $   78,995  $   46,577
Interest and dividend income................................  $    6,597  $    6,117

</TABLE>


Note 7: Effective  January 1, 1998, the Company  adopted  Statement of Financial
Accounting Standards No. 130, "Reporting  Comprehensive  Income". This statement
establishes  standards for reporting and display of comprehensive income and its
components in financial  statements.  Total comprehensive  income which included
primarily net income and  unrealized  gains on marketable  securities  was $52.6
million and $49.1  million for the three  months  ended  September  30, 1998 and
1997,  respectively,  and $138.9  million and $122.7 million for the nine months
ended September 30, 1998 and 1997, respectively.

In 1998,  Statement of Position No. 98-1,  "Accounting for the Costs of Computer
Software  Developed or Obtained for Internal Use", and Statement of Position No.
98-5,  "Reporting on the Costs of Start Up and  Preoperating  Activities",  were
issued.  The  Company  intends  to adopt  these  policies  beginning  in 1999 as
required by the  Statements.  The Company  does not expect the adoption of these
statements to have a material impact to the financial statements.

In June 1998,  the Financial  Accounting  Standards  Board issued a Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities".  The Company intends to adopt this Statement in January
2000 as required by the Statement. Adoption of this Statement is not expected to
have a material impact on the Company's financial statements.


                                      6
<PAGE>
                              THE SERVICEMASTER COMPANY
                         MANAGEMENT DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

THIRD QUARTER 1998 COMPARED TO THIRD QUARTER 1997
-------------------------------------------------

Revenues  increased  17  percent to $1.3  billion in the third  quarter of 1998,
through a combination  of  acquisitions  and solid growth from base  operations.
Approximately  8 percent of the revenue  increase  resulted from internal growth
and small rollup acquisitions in existing service lines, primarily lawn care and
pest control, with another 6 percent coming from platform and other acquisitions
in plumbing  and  landscaping.  The  remaining  3 percent of the revenue  growth
represented  the  formation  of  ServiceMaster   Employer  Services  through  an
acquisition  of a professional  employer  organization  in August of 1997.  This
service  line has a  significant  impact on revenues  and  margins,  because the
entire  payroll of the  employees  for whom  services are provided is recognized
both as revenue and  operating  cost.  As a result,  the margins are low in this
business  and  reduce  the  Company's   consolidated  operating  income  margin.
Operating income increased 16 percent to $113.8 million while margins  decreased
to 8.9 percent of revenue from 9.0 percent in 1997.  Operating margins excluding
Employer Services  increased to 9.7 percent of revenue from 9.5 percent in 1997,
reflecting  improved  operating  efficiencies  and the  continued  growth of the
higher margin businesses.  Third quarter diluted earnings per share increased 19
percent to $.19  compared to pro forma  diluted  earnings  per share of $.16 for
1997.  On this same basis,  net income grew 20  percent,  from $46.8  million to
$56.4 million. Net income grew at a slightly faster rate than earnings per share
due to an increase in shares  outstanding  resulting  from the Company's  equity
offering in May 1998.

The Consumer  Services  business unit achieved  strong double digit increases in
revenues and profits with good growth reflected at all of the companies.  Strong
growth from both internal  sources and  acquisitions,  including the  commercial
landscape businesses and the Rescue Rooter plumbing business,  contributed to an
overall 19 percent increase in revenues.  TruGreen-ChemLawn achieved revenue and
profit growth  reflecting solid increases in customer counts and the integration
of the commercial  landscape  acquisitions.  Severe  weather  conditions in many
regions of the country resulted in some production  revenues being deferred into
the fourth  quarter  along with the  recognition  of certain  deferred  seasonal
expenses.  In August, the Company acquired Ruppert Landscape Company, one of the
largest commercial landscaping companies. On November 2, the Company announced a
definitive  agreement to purchase LandCare USA which the Company believes,  when
combined with TruGreen-ChemLawn's existing landscape operations, will create the
largest  commercial  landscape company in America.  This  acquisition,  which is
subject to the approval of a majority of LandCare's shareholders, is expected to
be  completed  by the  end  of the  first  quarter  of  1999  and  will  provide
TruGreen-ChemLawn with opportunities to broaden its service capabilities, expand
market  opportunity  and develop  strong  geographic  footholds  in major cities
across  America.  Terminix  achieved  strong double digit growth in revenues and
profits reflecting  excellent growth in termite completions which benefited from
favorable  weather  conditions,  strong  growth  in the  higher  margin  renewal
business,  and double digit growth in pest control  revenue.  On October 12, the
Company  announced 


                                       7                                 
<PAGE>

the  acquisition  of the pest  control  business of National Britannia.  The  
acquisition of National  Britannia,  which is the third largest pest control  
company in the United Kingdom,  further  strengthens the Company's ability to 
grow and develop its Terminix  business in Europe and  continues  the strategy 
of the enterprise to expand its global  presence.  American Home Shield 
continued to  experience  strong  momentum and very good volume  increases  with
double  digit  growth in real  estate  sales,  direct  to  consumer  sales,  and
renewals.  This volume  increase was  partially  affected by  increased  service
orders  relating to expensive air  conditioning  repairs due to the extreme heat
experienced  in many  parts of the  country.  Residential/Commercial  and  Merry
Maids,  the franchise  operations,  achieved  strong  profit  growth  reflecting
continued  margin  improvements  in  company-owned  operations  and strong  cost
controls.  Rescue  Rooter  achieved good results  reflecting  strong growth from
internal sources and the benefits of marketing and productivity improvements.

Traditional Management Services, excluding Diversified Health Services, reported
solid  revenue  growth  from  acquisitions  and  internal  sources  and a slight
increase in profits.  The traditional  Healthcare market had revenues consistent
with last year but lower  profits due to industry  pressures  which  continue to
affect the margins in the acute care sector of the business.  Education achieved
increases in revenues and profits  resulting from improved  customer  retention,
increased contract margins and good cost controls. The Business & Industry group
reported  strong growth in revenues and profits  reflecting  solid  increases in
automotive services and the successful integration of acquisitions.

The  Diversified  Health  Services  businesses  reported a  decrease  in profits
primarily due to operating  losses in the home health care business.  Changes in
government  reimbursement  programs have negatively impacted home health care as
well as other Diversified Health Services  businesses.  During the quarter,  the
Company  wrote  down  certain  assets in  Diversified  Health  Services  against
previously  established  reserves which included $5 million relating to the home
health  business.  The Company is currently  reviewing its  long-term  strategic
objectives  with respect to home health care and intends to finalize this review
by the end of the year. The Company's  investment in the home health business is
approximately $30 million.

Cost of services  rendered and products sold increased 15 percent due to general
business  growth,  but  decreased as a percentage  of revenue to 75.1 percent in
1998 from 76.4 percent in 1997.  This decrease  primarily  reflects the changing
mix of the business as Consumer  Services  increases in size in  relationship to
the overall business of the Company as well as productivity improvements and the
successful  integration  of  acquisitions  at Consumer  Services.  The  Consumer
Services  companies  generally  operate at higher gross  margin  levels than the
other  businesses  but also incur  somewhat  higher  selling and  administrative
expenses as a percentage of revenues.

Selling and administrative expenses increased 27 percent due to general business
growth and  increased  as a  percentage  of revenue to 15.9 percent in 1998 from
14.6 percent in 1997.  This increase as a percentage of revenue is primarily due
to the changing mix of the company noted above.

Interest  and  investment  income  decreased  reflecting  a gain  in  1997 on an
international joint venture.


                                       8
<PAGE>

NINE MONTHS 1998 COMPARED TO NINE MONTHS 1997
---------------------------------------------

Revenues for the nine months  increased 20 percent to $3.5 billion over 1997 due
to acquisitions  and growth in base  operations.  Approximately 5 percent of the
revenue  increase  resulted  from platform  acquisitions  with another 8 percent
reflecting  internal  growth and small rollups in existing  service  lines.  The
remaining  7  percent  of  revenue  growth  resulted  from  the  newly  acquired
professional  employer  organization.  Operating  income increased 17 percent to
$297.4  million  while  margins  decreased  to 8.5  percent of revenue  from 8.7
percent in 1997.  Operating margins excluding Employer Services increased to 9.2
percent of revenue  from 8.9  percent in 1997,  reflecting  continued  growth of
higher  margin   businesses,   productivity   improvements  and  the  successful
integration  of  acquisitions.  Diluted  earnings  per share for the nine months
increased 17 percent to $.48 compared to pro forma diluted earnings per share of
$.41 for 1997. On this same basis, net income grew 16 percent, to $142.0 million
from $122.5 million.

The Consumer  Services  business unit achieved a 20 percent  increase in revenue
and excellent  profit  growth  reflecting  good growth at all of the  companies.
TruGreen-ChemLawn  reported  double  digit  increases  in  revenues  and profits
reflecting  solid  base  business  growth  and the  entry  into  the  commercial
landscape market. As a result of the extreme heat during the summer months, some
production  was deferred into the fourth  quarter as well as the  recognition of
certain deferred seasonal expenses.  Terminix reported strong growth in revenues
and profits  reflecting  double digit  increases  in all areas of the  business,
including  termite  completions,  termite  renewals  and pest control as well as
margin improvements from increased efficiencies and favorable weather. Growth in
initial termite  treatments was supported by strong  customer  acceptance of the
non-invasive  baiting treatment system.  American Home Shield reported excellent
volume  growth with double  digit  increases  in real  estate  sales,  direct to
consumer sales,  and renewals.  Residential/Commercial  and Merry Maids achieved
good revenue growth and strong  increases in profits  despite an extremely tight
labor market,  reflecting  operational  improvements  and strong cost  controls.
Rescue Rooter achieved good results with strong  increases from internal sources
and improving margins.

Traditional Management Services, excluding Diversified Health Services, reported
revenue growth primarily related to acquisitions as well as modest base business
increases.  Profits  for the nine  months  were  below the prior  year  level as
increases  in  Education   and  Business  &  Industry  were  offset  by  reduced
profitability  in the  Healthcare  market.  The  traditional  Healthcare  market
reported a slight  decline in revenues  with lower profits than last year due to
continued  industry  pressures   resulting  in  reduced  margins  and  increased
investments  in the  business.  Education  achieved  strong profit growth due to
increased  sales,   improvements  in  retention  and  the  favorable  effect  of
eliminating costs incurred last year related to unwinding a large contract.  The
Business & Industry group reported  strong revenue growth  primarily  reflecting
acquisitions with improved contract sales in the base business.

For the nine months,  Diversified  Health Services  reported  profits below last
year  primarily  reflecting  operating  losses in the home health care business.
Changes  in  Medicare  reimbursement  levels  have  significantly  impacted  the
operating  results of the home health  operations  as well as other  Diversified
Health


                                       9
<PAGE>

Services lines.  In light of these  government  changes and the industry
transition,  the Company is reviewing its long-term  strategic  objectives  with
respect to home health care in the fourth quarter.  The Company's  investment in
the home health business is approximately $30 million.

Cost of services  rendered and products sold increased 20 percent due to general
business  growth  and the  addition  of  Employer  Services.  Cost  of  services
increased as a  percentage  of revenue to 77.2 percent in 1998 from 76.9 percent
in 1997. Excluding Employer Services,  cost of services increased 12 percent and
decreased as a percentage  of revenue to 75.8 from 76.5 in 1997.  This  decrease
primarily reflects the changing mix of the business as Consumer Services becomes
a  greater  percentage  of the  overall  business  of the  Company  as  well  as
productivity improvements and the successful integration of acquisitions.

Selling and administrative expenses increased 19 percent due to general business
growth and acquisitions  and slightly  decreased as a percent of revenue to 14.3
percent from 14.4 percent.

Interest expense  increased as compared to prior year primarily due to increased
debt  outstanding  throughout  the nine  months  relating to the  repurchase  of
ServiceMaster  shares  held  by WMX and  acquisitions  partially  offset  by the
issuance of shares in the May public  offering.  Interest and investment  income
increased due to the growth in the investment  portfolio of American Home Shield
and recognized  gains on sales of marketable  securities  partially  offset by a
gain in 1997 on an international joint venture.

FINANCIAL POSITION
------------------

Net cash provided from operations of $205.6 million represents a slight decrease
compared  to the first  nine  months of 1997,  reflecting  the timing of certain
items.   Federal  taxes  on  the  Company's  earnings,   while  accrued  in  the
consolidated  income  statement will not have to be paid until the first quarter
of 1999. At that time, the Company will be responsible  for its 1998  obligation
and will  begin  making  estimated  payments  for 1999 as well.  Some of the tax
expense  will be  deferred  for a longer  period of time due to the  significant
timing differences between book and tax basis.

Since  the  Company  is able to defer  its 1998 tax  payment,  the cash  flow is
comparable  to last year when the  Company was in  partnership  form and paid an
immaterial  amount of federal  taxes.  The decline in cash from  operations  was
primarily due to the acceleration of customer  prepayments at  TruGreen-ChemLawn
into the fourth quarter of 1997 due to a successful  pre-season selling campaign
and the current year funding of early seasonal investments for the acquired lawn
care operations, which the Company did not incur in 1997. In addition, cash from
operations  for the  nine  months  was  negatively  impacted  by the  timing  of
semi-annual  interest payments  reflecting the refinancing of debt in late 1997.
In addition to the interest payments, there were other timing issues relating to
certain large expense items,  such as  advertising  and payroll tax payments and
the recognition of certain deferred  expenses in  TruGreen-ChemLawn.  Management
believes that funds generated from operations and other existing  resources will
continue to be adequate to satisfy  the  ongoing  working  capital  needs of the
Company.


                                      10
<PAGE>

The  increase in accounts  and notes  receivable  over year end levels  reflects
general business growth,  increased  seasonal build-ups in the Consumer Services
segment,  and  acquisitions.  The increase in  inventories is a result of normal
seasonal build-ups in the pest control and lawn care businesses.

Prepaids and other assets have increased from year end because of seasonality in
the lawn  care and pest  control  businesses.  The lawn  care  operation  defers
certain  marketing  costs that are  incurred  early in the year but are directly
associated with revenues that are realized in subsequent quarters of the current
year.  These costs are then  amortized over the balance of the current lawn care
production season, as the related revenues are recognized. In addition,  prepaid
expenses have also increased due to the deferral of contract  acquisition  costs
at American Home Shield which have grown as a result of the increased  volume of
warranty  contracts  written.  Deferred  revenues also increased  reflecting the
strong growth in warranty contracts written at American Home Shield.

Property  and   equipment   increased  due  to  general   business   growth  and
acquisitions.  Capital expenditures grew primarily due to growth in the business
and   investments  in  computer   system/technology   upgrades   throughout  the
organization  including automatic dialers at TruGreen-ChemLawn.  The Company has
no material commitments at this time.

Intangible  assets  increased  from year end primarily  reflecting the impact of
acquisitions,  which  included  Rescue  Rooter,  Ruppert  Landscape  Company and
several other  commercial  landscape  companies  and other smaller  Consumer and
Management  Services  companies.  Through the nine  months,  approximately  $323
million  of  companies  were  purchased  with  $172  million  representing  cash
consideration  and the remaining  amount  representing  shares issued and seller
financed debt.

Accrued  liabilities  increased  from year end reflecting  seasonal  activity at
Consumer  Services and an increase in income taxes  payable.  The tax  liability
represents  taxes  payable on 1998  earnings for which payment has been deferred
until first quarter 1999.

Debt levels decreased reflecting the use of proceeds from the equity offering to
pay down debt offset in part by acquisitions and capital  spending.  The Company
is a party to a number of long-term debt agreements which require it to maintain
compliance  with  certain   financial   covenants,   including   limitations  on
indebtedness, restricted payments, fixed charge coverage ratios and net worth.
The  Company  is  in  compliance  with  the  covenants  related  to  these  debt
agreements.

Total  shareholders'  equity  increased  to $902.0  million in 1998 from  $524.4
million at December  31, 1997  reflecting  the public  equity  offering,  strong
growth in earnings  and shares  issued for  acquisitions,  which were  partially
offset by shareholder  distributions and share repurchases.  The equity offering
was completed in the second quarter and resulted in the sale of approximately 21
million  shares (11 million of newly issued shares and 10 million of shares sold
by existing shareholders) at $19.17 a share. The net proceeds to the Company was
approximately $209 million and was used to reduce outstanding debt.


                                      11
<PAGE>

Cash  distributions  paid  directly to  shareholders  for the nine months  ended
September  30,  1998,  totaled  $69  million  or  $.24  per  share.  Total  cash
distributions  paid to shareholders was consistent with the prior year primarily
reflecting a 4 percent increase in per share  distributions  offset by the April
1997 repurchase of  ServiceMaster  shares from WMX. In 1997 total  distributions
included  payments to the  shareholder  trust of $25 million while in 1998 a tax
refund was recorded related to the final trust tax filing which reduced reported
distributions by $10 million.

YEAR 2000 STATUS
----------------

Year 2000 Compliance.  Certain computer programs use two digits rather than four
to define the applicable year and consequently may not function  properly beyond
the year 1999 unless they are remediated.  In addition,  some computer  programs
are unable to recognize  the year 2000 as a leap year.  These  problems may also
exist in chips embedded in various types of equipment. The Company has long been
aware of this Year 2000 (Y2K)  problem.  The  Company  is  dealing  with the Y2K
problem in part  through  system  upgrades,  which were  planned to occur in the
normal  course of business.  In other cases,  the Company has put programs  into
place which the Company  believes  will result in the  completion  of  necessary
remediation efforts prior to the year 2000.

State of Readiness.  The Company has initiated a program (the "Y2K  program") to
address  Y2K issues as they affect the  Company's  information  technology  (IT)
systems, electronic data interfaces and its non-IT hardware. The Y2K program was
set up to use the  following  steps as  appropriate:  inventory -  assessment  -
planning - renovation - testing - implementation. In addition, the program calls
for  inquiries  of the  Company's  major  suppliers  of goods  and  services  to
determine their Y2K status and a review of the Company's  relationships with its
customers to determine if the Company has any  responsibility  for the status of
the customers' IT and/or non-IT systems and hardware.

In 1998,  the  Company  began to monitor  its  progress  on the Y2K program on a
consolidated  basis and completed an inventory  which covered both IT and non-IT
items  for  all  operating   companies  and  administrative   units  within  the
ServiceMaster enterprise.  All items in the inventory were placed in one of four
categories:  mission  critical,  critical,  important  and  ordinary  within the
context of the operating  company or administrative  unit involved.  (A "mission
critical" or "critical"  designation for an item within an operating  company or
administrative unit does not necessarily hold the same level of criticality from
the perspective of the entire ServiceMaster enterprise).

Remediation  plans have been  developed  for the mission  critical  and critical
matters,  with milestones  established for each plan which enable  management to
measure  the  progress  made in  respect  of a plan  against  the work  schedule
established  for that plan.  Although  these  plans  encompass  many  separately
identifiable items, from a ServiceMaster  enterprise standpoint,  there are nine
projects (the "Key Projects")  which management has identified as either mission
critical or critical and which will require a measurable  amount of attention to
remediate.  Although all of the Key Projects are scheduled for completion before
the end of the year 1999,  most of the Key Projects are scheduled for completion
by June 30, 1999.  As of October 31, 1998,  work on each of the Key Projects


                                      12
<PAGE>

was on schedule and the Company  believes that all Key Projects will be
completed in accordance with their scheduled completion dates.

The Company has  utilized  the  services  of an outside  consultant  for the Y2K
program to help  identify Y2K issues and to develop a system to closely  monitor
remediation work. In early 1998, the Company  established a Y2K committee in the
parent unit with  responsibility  for  monitoring the Y2K program in each of the
Company's  operating  units and for  providing  status  reports  to the Board of
Directors.

Year 2000 Costs.  Several of the Key Projects are upgrades of systems  which the
Company would have undertaken  irrespective  of the Y2K problem.  In some cases,
including a new accounting and financial reporting system for the parent company
and  its  Management  Services  subsidiary,  work  on  these  systems  has  been
accelerated  in view of Y2K issues.  Other  upgrades or new systems were already
scheduled for  completion  prior to the year 2000,  such as a new support system
for the  Company's  American Home Shield  subsidiary  and a new  accounting  and
billing system for the recently developed  commercial  landscape business within
the Company's TruGreen-ChemLawn  subsidiary.  References to "Year 2000 costs" in
this report do not include the costs of projects  for which no  acceleration  is
occurring due to Y2K issues.

The  Company's  Year  2000  costs  to date  are not  material  to the  Company's
financial position and the Company does not expect its future Year 2000 costs to
be material to the Company's  results of operations or financial  position.  All
Year 2000 costs (as well as the costs of installing the system upgrades referred
to above) have been,  and are expected to continue to be,  funded with cash from
operations.

Year 2000 Risks.  The Company  believes that its greatest  Year 2000  compliance
risk, in terms of magnitude of risk, is that key third party  suppliers of goods
or  services  may fail to  complete  their own  remediation  efforts in a timely
manner and thereby  provoke an interruption in the ability of one or more of the
operating  segments  of the Company to provide  uninterrupted  services to their
customers.  Utility services  (electrical,  water and gas),  telephone  service,
banking services and, to a much lesser degree, the delivery of chemical products
are the critical items in this regard.  Based on the Company's  inquiries to its
providers  of goods  and  services  and on the  basis of the  Company's  general
knowledge  of the state of  readiness  of the utility  companies  and banks with
which it does  business,  the  Company  does not expect to suffer  any  material
interruption in the services on which the Company depends.

The  Company  has  reviewed  its  agreements   with  its  customers,   including
particularly the customers of its Management  Services units for whom such units
provide facility  management  services.  The Company is satisfied that it is not
responsible, contractually or otherwise, for the Y2K readiness of the customer's
IT and  non-IT  systems  and  hardware,  and the  Company  is in the  process of
notifying all of its customers to this effect where, in the Company's  judgment,
the nature of the customers' business or facility warranted such notices.

Where the Company uses its own  software in the course of  providing  management
services,  the Company is responsible  to make such software Y2K compliant.  The
Company  is  confident  that such  software  is  already,  or soon will 


                                      13
<PAGE>

be,  Y2K compliant.  For those  units of the  Company  which  sell  franchises  
and which provide software to the franchisees,  such software is already, or 
soon will be, fully Y2K  compliant  or,  alternatively,  provision  has been  
made for making available  to  franchisees  software  from  third-party 
developers from  whom appropriate Y2K compliance assurances have been or will be
received.

Contingency  Plans.  At this time, the Company fully expects all of its internal
key IT and non-IT  systems to be Y2K compliant well in advance of the end of the
year 1999.  If it appears  that  timely  delivery  of any Key  Projects  becomes
questionable,  the Company  will  immediately  develop  appropriate  contingency
plans.

The  Company  presently  expects  that its  significant  providers  of goods and
services are or will be Y2K  compliant by the end of the year 1999.  The Company
will  continue to make  inquires of its key suppliers for the purpose of testing
this expectation.  Insofar as the Company is exposed to risks originating in Y2K
problems at key suppliers, the Company will utilize short-term solutions, but no
practical  long-term  contingency  plans for these  external  Y2K  problems  are
possible.

Although  the  Company  believes  that  critical  remediation  efforts  will  be
completed  prior to the Year 2000,  the  untimely  completion  of these  efforts
could,  in  certain  circumstances,  have  a  material  adverse  effect  on  the
operations of the Company.


                                      14
<PAGE>

                           PART II. OTHER INFORMATION


Item 1:    Litigation

Two lawsuits  have been filed in Texas  against  ServiceMaster,  ServiceMaster's
American Home Shield subsidiary ("AHS") and AHS' Texas subsidiary  ("AHS-Texas")
in which four plaintiffs claim that AHS-Texas violated certain provisions of two
Texas consumer  protection  statutes in the course of soliciting new and renewal
service  contracts.  The  plaintiffs  have  requested  the court to  permit  the
lawsuits  to be  maintained  as class  actions  on behalf of all  customers  who
purchased  service  contracts since late 1993.  Theoretically,  this would place
some 300,000  contracts in issue.  The plaintiffs  have further claimed that the
number of  contracts  in issue times a statutory  penalty of $1,000 per contract
represents  the  measure  of  damages.  ServiceMaster  believes  that  AHS-Texas
accurately  represented the coverage provided in its service agreements and that
the changes in the  wording of its renewal  contracts  were  routine  updates or
clarifications.  In this regard,  it is  noteworthy  that most of the  AHS-Texas
contract  forms were  reviewed and approved by the Texas Real Estate  Commission
before the forms were  distributed.  In any and all events,  no material  actual
damages have been suffered by anyone in this matter. Furthermore,  ServiceMaster
believes  that the lawsuits  can not be sustained as class  actions and that the
statutes in question were not intended to be applied in the manner  advocated by
the  plaintiffs   (and  in  fact  can  not  be  so  applied  under  the  federal
constitution).  Accordingly, ServiceMaster believes that the ultimate outcome of
these cases will not be  material  to  ServiceMaster's  financial  condition  or
results of operations.

Item 5:    Other Matters

ServiceMaster  has entered  into a merger  agreement  with  LandCare  USA,  Inc.
("LandCare")  dated  as  of  November  1,  1998  under  which,  subject  to  the
satisfaction  of certain  conditions,  LandCare will merge with a  ServiceMaster
acquisition  subsidiary  (the  "Merger")  and  thereby  become  a  wholly  owned
subsidiary  of  ServiceMaster  and each  outstanding  share of  common  stock of
LandCare will convert into a fraction of a share of ServiceMaster  common stock.
The conversion  ratio depends upon the average  market price of  ServiceMaster's
common  stock for twenty  consecutive  trading  days ending  shortly  before the
meeting at which LandCare's  stockholders vote on the Merger and upon the number
of LandCare  shares of common  stock  issued  before the Merger is  consummated.
ServiceMaster  estimates that the number of  ServiceMaster  shares issued in the
Merger will increase the number of  ServiceMaster  shares  outstanding  by about
five percent.

Completion  of the  Merger is  subject  to  several  conditions,  including  the
approval  of the Merger by the  holders of at least a majority  of the shares of
LandCare  common  stock   outstanding  on  the  record  date  for  the  LandCare
stockholders  meeting.  Key members of LandCare's  management  and certain other
LandCare  stockholders have agreed to vote their LandCare shares in favor of the
Merger.   These  shares  represent  about  30%  of  the  LandCare  common  stock
outstanding   on  November  1,  1998.  The  parties  expect  that  the  LandCare
stockholders  meeting will be held in mid-February 1999.  Information  regarding


                                      15
<PAGE>

the   Merger   will  be   provided   to   LandCare   stockholders   in  a  proxy
statement/prospectus   prepared  by  ServiceMaster  and  LandCare.  No  vote  by
ServiceMaster's stockholders is required.

LandCare was formed in June 1998  through the  affiliation  of seven  commercial
landscaping  companies  serving  separate  regional  markets  across  the United
States. It is currently one of the leading commercial  landscaping  companies in
the country.  Since the completion of an initial  public  offering of its common
stock in June  1998,  LandCare's  common  stock has been  listed on the New York
Stock Exchange.

In accordance  with the Private  Securities  Litigation  Reform Act of 1995, the
Company  notes  that  statements  that  look  forward  in  time,  which  include
everything other than historical  information,  involves risks and uncertainties
that may affect the Company's actual results of operations.  Factors which could
cause actual results to differ materially  include the following (among others):
weather  conditions  adverse  to  certain  of the  Company's  Consumer  Services
businesses,  labor shortages,  the entry of additional competitors in any of the
markets  served by the Company,  consolidation  of  hospitals in the  healthcare
market,  the  condition of the U.S.  economy,  the inability of key suppliers to
achieve timely Y2K compliance in their delivery  systems or the inability of the
Company to make its own systems Y2K  compliant,  and other  factors  listed from
time  to  time  in the  Company's  filings  with  the  Securities  and  Exchange
Commission.


                                      16
<PAGE>

                                      SIGNATURE


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Date:  November 16, 1998


                          THE SERVICEMASTER COMPANY
                          (Registrant)

                          By:                    /s/Steven C. Preston         
                             ---------------------------------------------------
                                                    Steven C. Preston
                          Executive Vice President and Chief Financial Officer


                                      17
<PAGE>